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Transfer Balance Cap

What’s a ‘Transfer Balance Cap’ and how does it affect me?

From 1 July 2017, members will only be able to commence superannuation income streams with an account balance of $1.6 million or less (in total). If you are already in receipt of an income stream, you will need to ensure the balances of your income stream accounts total no more than $1.6 million as at 1 July 2017. Any excess amounts will need to be transferred back to an accumulation account or withdrawn from super entirely (where eligible). Minimum withdrawals are only required from your income stream account. If this amount does not meet your cash flow needs, you will need to consider how this income will be supplemented – this could be from sources outside super, from your accumulation balance or from increasing your withdrawals from an income stream account. Different options may impact on tax outcomes for you and your estate planning.

How much do I have in super and where is it held?

Many of the new thresholds are assessed against your ‘Total Superannuation Balance’. In order to know what to do with your legalsuper account balance you will need to know what your total balance is across all super funds in which you have an account. If you have a defined benefit superannuation fund in addition to your legalsuper account, you need to consider specific provisions for how balances in these type of accounts are calculated and how they impact on the various thresholds and caps.

I am currently receiving an income stream from both my self-managed super fund (SMSF) and legalsuper. Is there anything else I need to consider?

Both your SMSF and legalsuper balances need to be considered when determining your total superannuation balance. If you have income streams from both funds that in total exceed $1.6 million, you will need to decide from which fund you would like to continue to receive an income stream and which will need to commute an amount back into an accumulation account to comply with the new $1.6 million transfer balance cap. Both funds could pay an income stream and have an accumulation account but you need to make sure that the income stream balances when totalled do not exceed $1.6 million on 1 July 2017. Where an amount in either (or both) funds needs to be commuted (wholly or in part), you will need to notify the trustees of either (or each) fund and document your intentions prior to 30 June 2017. Even if you don’t know the exact amount that needs to be commuted, you will need to ensure that you have documented your intentions to comply with the new transfer balance cap before the end of this current financial year.

You may need to consider the tax free and taxable components of multiple income streams when deciding which income stream to commute. Your SMSF administrator or adviser should be able to assist.

I have a self-managed super fund (SMSF) as well as my legalsuper account. Do I use one for my income stream and one for my accumulation account?

You can use any combination of income stream and/or accumulation accounts within either or both funds. You do need to make sure that if you are to receive an income stream from both super funds, the balance of those income stream accounts from 1 July 2017 does not exceed $1.6million in total.

Can I still keep my money in legalsuper?

Absolutely. Although some members with total super balances of more than $1.6 million may have to move some of their balance out of their income stream accounts back into their accumulation accounts, the $1.6 million transfer balance cap does not require you to remove your money from the superannuation environment altogether.

I am currently in receipt of a Transition to Retirement Pension (TTR) – what’s happening? Do I need to take any action before 30 June 2017?

You are still able to continue to receive a TTR from legalsuper. However, the tax rules of these income streams will be changing from 1 July 2017 meaning they will no longer be eligible for all of the tax concessions that currently apply and which will continue to apply to other types of income stream accounts. Specifically, investment earnings generated by the TTR (which are currently free from tax) will be taxed at a maximum rate of 15% from 1 July 2017.

TTR’s do not count towards the $1.6 million transfer balance cap. However, this can change once you have satisfied a full condition of release (retirement or reaching age 65) therefore seeking guidance in these circumstances is advisable.

I'm receiving an income stream from both legalsuper and my SMSF. Am I eligible for any CGT relief in my SMSF?

Where the assets supporting both income streams are valued, in total, at more than $1.6 million (the new transfer balance cap), your SMSF may be eligible for CGT relief because some of your balance needs to be commuted back into an accumulation account to comply with the new laws. Similarly, where you are in receipt of a Transition to Retirement Pension (TTR), regardless of the balance, your SMSF may be eligible for CGT relief also. The CGT relief will allow a deemed sale and re-acquisition of assets to effectively re-set the cost base of those assets so that unrealised gains are taxed in line with current tax exemption status and future gains will be taxed in line with the tax exemptions applicable at the time of actual sale. There are strict criteria and different methodologies that can apply and elections to take up CGT relief are irrevocable. It would be advisable to engage with your accountant, adviser or SMSF administrator if you think you may be eligible for this relief to discuss how your SMSF might proceed.

How do these new measures affect my estate planning?

You may need to reconsider your estate planning in light of the super changes. Death benefits that were previously able to be retained within the superannuation environment will become subject to the transfer balance caps of the recipient. In these circumstances, amounts in excess of the cap will need to be withdrawn from the superannuation environment altogether.

You should also consider any reversionary nominations and Binding Death Benefit Nominations you have in place to ensure they remain appropriate for you.

Should I make non-concessional contributions to superannuation this financial year?

Normal contribution rules and thresholds continue to apply up until 30 June 2017. Substantial changes will apply from 1 July 2017 resulting in restrictions on who can contribute and how much. This financial year may be the last opportunity for many to make non-concessional contributions.

Key changes to non-concessional contributions from 1 July 2017:

Annual non-concessional contribution cap will be reduced from $180,000 to $100,000

Individuals with total super balances above $1.6 million will be ineligible to make non-concessional contributions

Bring forward provisions (the ability to bring forward two years’ worth of contributions) will be amended for those with total super balances between $1.4 million and $1.6 million.

Do I need to worry about Concessional Contributions?

The annual concessional contribution caps are reducing to $25,000 from 1 July 2017. Up until 30 June 2017, the caps are $30,000 for under 50 year olds and $35,000 for those over 50 years of age. If you currently have salary sacrifice arrangements in place, you may need to review these to ensure you will not exceed the reduced cap next year. From 1 July 2017 you may become eligible to claim a deduction for personal superannuation contributions. Currently, the ability to claim a deduction is limited to those individuals with less than 10% of their assessable income from an employment source. This ‘10% rule’ is being removed. Both salary sacrificed amounts and personal deductible superannuation contributions count towards your concessional contributions cap in addition to any Superannuation Guarantee (SG) amounts paid by an employer.

What action do I need to take before 30 June 2017?

Consider whether non-concessional contributions should be made this financial year.

Consider salary sacrifice arrangements for the 2017/18 financial year and advise your payroll office of any changes

Advise legalsuper (or other super providers) if you wish to commute an amount of any income stream you are receiving to ensure you comply with the new transfer balance cap provisions. Remember, you need to consider income streams across all super balances.